The Bank of England and Financial Conduct Authority have published a joint policy statement providing feedback to responses received to the Digital Securities Sandbox joint consultation (CP24/5). We discussed the proposals in April in "UK Regulators Consult on Digital Securities Sandbox". The policy statement covers the following topics: (a) the approach to regulating DSS firms; (b) the scope of the DSS; (c) settlement of the payment leg; (d) operation of the DSS; (e) Gate 2 and end-state rules; (f) supervision of the DSS; and (g) other general issues relating to the DSS.
Overall respondents welcomed the regulators proposals, with no respondents explicitly disagreeing with the creation of the DSS. In response to feedback, the BoE and FCA have made some changes to their proposed approach and guidance, such as: (i) extending the scope of the DSS to include non-GDP (non-pound sterling) denominated assets; (ii) a more flexible approach to firm-specific limits at Gate 2, moving from fixed 'go-live' limits to a flexible range; and (iii) reducing the minimum capital requirement for a DSD from nine to six months of operating expenses.
Alongside the policy statement, the BoE and FCA published joint final guidance on the operation of the DSS for firms intending to operate, or who are currently operating, in the DSS. It is a live document setting out the regulators' approach and the requirements on participants. However, while the document contains detailed guidance for firms, any instructions from supervisors should be taken as superseding this document. Firms are expected to have regard to this document when applying to become, or interacting with, a sandbox entrant.
The DSS is now open for applications, it will be operational until December 2028. The Gate 1 application window is expected to close around March 2027 to allow for firms inside the DSS and the regulators to prepare for a transition to a possible new permanent regime, provided new technologies are successfully implemented.
